ECO 365T Wk 1 – Practice Knowledge Check

In deciding whether to study for an economics quiz or go to a concert, one is confronted by the idea(s) of

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• scarcity and opportunity costs.
• money and real capital.
• complementary economic goals.
• full production.

Which of the following does not foster innovation and technological advance?

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• competition in markets
• freedom of choice and enterprise
• self-interest and personal rewards
• fear and avoidance of risk

The distinction between microeconomics and macroeconomics is

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• that microeconomics examines the beach, while macroeconomics looks at the sand, individual rocks, and shells, so to speak.
• so clear-cut that every topic can be readily labeled as either macro or micro.
• that microeconomics studies the behavior of individual consumers, workers, and firms, while macroeconomics studies the economy as a whole.
• that microeconomics seeks to obtain an overview, while macroeconomics observes the details of individual components.

The following table illustrates alternative production techniques for producing 18 widgets that can be sold for $1 each for a total revenue of $18.

Resource Price Per Unit of resource     Techniques (# of Units of Each Resource Required)

A     B     C     D

Labor      $ 2   3     2     1     2

Land       1     2     1     3     1

Capital    4     1     2     2     3

Entrepreneurship    3     1     2     1     1

If the price of labor increases from $2 to $3, then the results of using Technique C will change from an economic

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• loss of $2 to a loss of $1.
• profit of $2 to a profit of $1.
• profit of $1 to a profit of $2.
• loss of $1 to a loss of $2.

Microeconomics is concerned with

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• the aggregate or total levels of income, employment, and output.
• a detailed examination of specific economic units that make up the economic system.
• positive economics, but not normative economics.
• establishing an overall view of the operation of the economic system.

Assume the price of product Y (the quantity of which is on the vertical axis) is $15 and the price of product X (the quantity of which is on the horizontal axis) is $3. Also assume that money income is $60. The absolute value of the slope of the resulting budget line is

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• 5.
• 1/5.
• 4.
• 20.

Explanation

The slope of the budget line is found by dividing the price of the good shown on the horizontal axis ($3) by the price of the good shown on the vertical axis ($15).

The simple circular flow model shows that workers and capital owners offer their services to firms through the

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• product markets.
• resource markets.
• money markets.
• financial markets.

The slope of the typical production possibilities curve

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• is positive.
• becomes steeper as one moves southeast along the curve.
• is constant as one moves down the curve.
• becomes flatter as one moves southeast along the curve.

The simple circular flow model shows that

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• households are on the buying side of both product and resource markets.
• businesses are on the selling side of both product and resource markets.
• households are on the selling side of the resource market and on the buying side of the product market.
• businesses are on the buying side of the product market and on the selling side of the resource market.

A well-tested economic theory is often called

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• a hypothesis.
• a prototype.
• a principle.
• an anomaly.

The economic function of profits and losses is to

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• bring about a more equal distribution of income.
• signal that resources should be reallocated.
• eliminate small firms and reduce competition.
• tell government which industries need to be subsidized.

The major virtues of the market system include all of the following, except

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• it promotes an efficient allocation of resources.
• it leads to equality in the distribution of income.
• it provides incentives for greater production and higher incomes.
• it emphasizes the freedom to pursue self-interest.

Specialization and international trade allow a nation to

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• produce a combination of goods that is beyond (or outside) its production possibilities.
• consume a combination of goods that is beyond (or outside) its production possibilities.
• have an upward-sloping production possibilities curve.
• consume a lot of goods without having to produce any output.

Answer the question on the basis of the data given in the following production possibilities table.

Production Possibilities (Alternatives)

A     B     C     D     E     F

Capital Goods 5     4     3     2     1     0

Consumer Goods    0     5     9     12    14    15

Refer to the table. If the economy is producing at production alternative C, the opportunity cost of the tenth unit of consumer goods will be approximately

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• 4 units of capital goods.
• 2 units of capital goods.
• 3 units of capital goods.
• 1/3 of a unit of capital goods.

Explanation

To find the opportunity cost of the “nth” unit (e.g. the tenth unit) of consumer goods, divide one (the change in capital goods between the two alternatives) by the difference between the two alternatives for consumer goods either side of this unit. For the tenth unit, the alternatives on either side are 9 and 12 units of consumer goods; their difference is 3 (= 12 − 9). So for the tenth unit of consumer goods, the opportunity cost = 1/3 of a unit of capital goods.

The distribution of income in a market system is a primary factor that resolves which of the following fundamental economic questions?

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• What will be produced?
• How will the output be produced?
• How will the system accommodate change?
• Who will get the output?

The scientific method is

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• not applicable to economics because economics deals with human beings.
• also known as the economic perspective.
• employed to form hypotheses out of existing laws and theories.
• used by economists and other social scientists, as well as by physical scientists and life scientists, to formulate and test hypotheses.

Which of the following is not considered by economists to be an economic resource?

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• money
• factory workers
• computers at a retail store.
• a forest

A nation can produce two products: steel and wheat. The table below is the nation’s production possibilities schedule.

Production Possibilities

Product   A     B     C     D     E     F

Steel       0     1     2     3     4     5

Wheat     100  90    75    55    30    0

In moving stepwise from possibility A to B to C … to F, the marginal opportunity cost of a unit of steel in terms of wheat

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• increases.
• decreases.
• remains constant.
• increases at first, then decreases.

The development of the digital video camera, which replaced film video cameras, is an example of

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• roundabout production.
• derived demand.
• creative destruction.
• specialization.

The market system is an economic system that

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• produces more consumer goods than capital goods.
• produces more capital goods than consumer goods.
• gives private individuals the right to own resources used in production.
• emphasizes the government’s power to control markets and direct economic activity.